Defining Customer Lifetime Value and a recipe for Customer Retention
Yesterday I attended the second Customer Success Forum meeting which we helped to create with Mikael Blaisdell. Our friends from Zuora provided the space and snacks! The customer success team of our customers, Clarizen, was out in full force. It was great to see everybody!
Here is a recap of Mikael’s speech:
Big things are happening in software land.
With SaaS, subscription services and easy data migration services available allowing you to shift vendors, the burden of success is finally shifting from the customers back to software companies.
“They change providers, like they change clothes”, said one software provider.
The assumption that you have to acquire the customer only once is out of date. You have to continue to acquire and re-acquire customers.
A mantra for customer success managers: “We make more money better faster for your company and ours and we can prove it.”
Customer success managers should track:
- Customer lifetime value from the vendor point of view: the total revenue from all conduits and referrals – costs of goods sold – cost to acquire the customer (CAC) – customer retention costs (CRC).
- Customer lifetime value from the customer point of view: value created for your customer post-sales in a way that the customer agrees. Track the time to customer value. Usage is a proxy for value: how much usage, which features are used and how much value is it generating for the customer.
- Customer retention rate: retention has to be calculated by revenues, by cohort, by seats, by duration, by customers. Also remember that there is no such thing as a lost customer: there are just inactive customers.
Wharton Business School defines customer centricity: perceive and manage itself not as a group of products, territories and functions but as a portfolio of customers.
A good example of an increasingly customer centric organization is Apple. Apple’s challenge is not to acquire more customers, but to sell their existing customers more things. They are doing it with the Genius bar: free advice. But more often than not the counselors will recommend additional Apple products.
There is a lesson for all of us here: don’t sell. Give advice. You don’t want to hear: “the only time we hear from you is when we are close to renewals”.
We are taking the Customer Success Forum on the road: next week Wednesday May 30! Totango will be flying Michael out to Waltham, MA to discuss Customer Retention and Customer Success Management in an evening hosted by Metratech. Check it out and register in advance if you’re in town – it’s free!